Financial and Accounting Systems – CA Inter EIS Study Material

Financial and Accounting Systems – CA Inter EIS Notes is designed strictly as per the latest syllabus and exam pattern.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 1.
What are the Types of Data?
Discuss the different ways in which Database Administrator (DBA) can store the data of ABC enterprise implementing Accounting Information : System (AIS). (RTP May 2020)
As a Database Administrator, you are invited in a Conference to speak on Data Types in front of audience of aspiring CA Students. You decide to segment your lecture in two – Master Data & Non- Master Data and Identify the types of Master Data in Financial & Accounting Systems. Determine the key points of the content of your lecture. (MTP)
A business organization is shifting from traditional accounting system to computerized accounting system. The organization needs to store the I data that is relatively permanent and not expected to change frequently in accounting system.

As a financial expert, suggest any two types of such data in accounting system. (May 2019; 2 Marks)
Every accounting systems stores data in two ways: Master Data and Non-Master Data (or Transaction Data)

  • Master Data are permanent data which are not expected to change frequently.
  • Non-Master Data are Non-permanent data and are expected to change frequently.

A. Master Data (RTP Nov. 18) : As defined above, master data is relatively permanent data that is not expected to change again and again. It j can change, but not again and again. In accounting systems, there can be following type of master data:

Financial and Accounting Systems – CA Inter EIS Study Material

  1. Accounting Master Data:
    • Accounting Master Data includes names of ledgers, groups, cost centers, accounting voucher types, etc.
    • E.g. Capital Ledger is created once and not expected to change frequently.
    • Similarly, all other ledgers like, sales, purchase, expenses and income ledgers are created once and not expected to change again and again.
    • Opening balance carried forward from previous year to next year are also not expected to change and is also a part of master data.
  2. Inventory Master Data:
    • Inventory Master Data includes name of stock items, stock groups, godowns, inventory voucher types, etc.
    • Stock item is something which is bought and sold for business purpose, trading goods.
    • Example: For a person running a medicine shop, all types of medicines shall be stock items for him/her.
    • E.g. If a person is into the business of dealing in white goods, stock items shall be Television, Fridge, Air Conditioner, etc.
  3. Payroll Master Data:
    • Payroll is basically a system to calculate salary and recoding of transactions with respect to employees.
    • Master data in case of payroll can be names of employees, group of employees, salary structure, pay heads, etc.
    • These data are not expected to change frequently.
    • E.g. Employee which are created in the system will remain as it is for a longer period of time, his/her salary structure may change but not frequently.
  4. Statutory Master Data:
    • It is related to statute/law.
    • There may be different type of taxes. E.g. Goods and Service Tax (GST), nature of payments for Tax Deducted at Source (TDS), etc.
    • This data will also be relatively permanent.
    • In case of change in tax rates, forms, categories, we need to up-date/change our master data.
      NOTE: All business process modules must use common master data.


  • It is a data which is expected to change frequently, and not a permanent data.
  • E.g. Amounts recorded in each transaction will be different every time and is expected to change again and again.
  • Date recorded in each transaction is expected to change again and again and will not be constant in all the transactions.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 2.
As an accountant, you are advised to address an audience of students and speak on different types of Vouchers used in Financial and Accounting Systems. Prepare your notes.

  1. IN ACCOUNTING LANGUAGE, a Voucher basically means a documentary evidence of a transaction.
  2. There may be different documentary evidences for different types of transactions.
    • E.g. Receipt given to a customer after making payment by him/her is documentary evidence of amount received.
    • A sales invoice, a purchase invoice, is also a documentary evidence of transaction.
    • Journal voucher is a documentary evidence of a non-cash/bank transaction.
  3. IN COMPUTER LANGUAGE, the word voucher has a little different meaning.

Voucher is basically a place where transactions are recorded. It is a data input form for inputting i.e entering the transaction data.

Sr. No. Voucher Type Use
i Contra To record four types of transactions as under.

a. Cash deposit in bank
b. Cash withdrawal from bank
c. Cash transfer from one location to another.
d. Fund transfer from our one bank account to our own another bank account.

2 Payment To record all types of payments. Whenever the money is going out of business by any mode (cash/bank)
3 Receipt To record all types of receipts. Whenever money is being received into business from outside by any’ mode (cash/ bank).
4 Journal To record all non-cash/bank transactions. Eg. Depreciation, provision, Write-off, Write-back, discount given/received, purchase/Sale of fixed assets on credit, etc.
5 Sales For recording all types of trading sales by any mode (cash/ bank/credit).
6 Purchase For recording all types of trading purchase by any mode (cash/ bank/credit).
7 Credit Note For making changes/ corrections in already recorded sales purchase transactions.
8 Debit Note For making changes / corrections in already recorded sales / purchase transactions.
9 Memorandum To record transaction which will be in the system but will not affect the trial balance.
10 Purchase Order To record a purchase order raised on a vendor.
11 Sales Order To record a sales order received from a customer.
12 Stock Journal To record physical movement of stock from one location to another.
13 Physical Stock For making corrections in stock after physical counting.
14 Delivery Note To record physical delivery of goods sold to a customer.
15 Receipt Note To record physical receipt of goods purchased from a vendor.
16 Attendance To record attendance of employees.
17 Payroll For salary calculations.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 3.
Discuss the peculiarities that must be considered while allotting a voucher number to a voucher.
Voucher number is a unique identity of any voucher/document. With the help of this unique voucher number, A voucher may be identified or searched.
The peculiarities that must be considered while allotting a voucher number to a voucher are as follows:

  1. It must be unique.
  2. Every voucher type shall have a separate numbering series
  3. All vouchers are recorded in chronological order and hence voucher recorded earlier must have an earlier number, ie. if voucher number for a payment voucher having date as 15th April 2017 is 112, voucher number for all the vouchers recorded after this date shall be more than 112 only.
  4. A voucher number may have prefix & or suffix or both, e.g. ICPL/2034 /17-18. In this case ‘ICPL’ is the prefix &, ‘17-18’is the suffix & ‘2034’ is the actual number of the voucher.
  5. All vouchers needs to be numbered serially, i.e. 1, 2, and 3, 4, 5, 6 and so on.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 4.
Explain the significance of Front End and Back End in a software. (May 2018; 4 Marks)

  • Front End – It is actually interacts with the user who is using the software; and is part of the overall software.
  • Back End- It is part of the overall software which does not directly interact with the user, but interact with Front End only.

Example: If a user wants to have some information from the system, i.e. Balance Sheet.

  • User will interact with Front end part of the software and
  • User requests front end to generate the report.
  • Front End will receive the instruction from user and pass it on to the back end.
  • Back End will process the data, generate the report and send it to the front end.
  • Front end will display the information to user.
  • This is how the process gets completed each and every time.

Question 5.
A medium sized enterprise ABC Ltd. wants to acquire Financial Ac-counting System not through its own IT infrastructure but rather through outsourcing its IT functions using cloud-based application. Enlist the characteristics of cloud-based application on various parameters that would help ABC company. (RTP Nov. 2020)
This module helps in analyzing the actual figures with the planned data and in planning business strategies. Two kinds of elements are managed in Controlling -Cost Elements and Revenue Elements. These elements are stored in the Financial Accounting module.

Key features of this module are as under:
Cost Element Accounting:
This component provides overview of the costs and revenues which occur in an organization. The cost elements are the basis for cost accounting and enable the user the ability to display costs for each of the accounts that have been assigned to the cost element. Examples of accounts that can be assigned are Cost Centres, Internal Orders, etc.

Cost Centre Accounting:
This component provides information on the costs incurred by the business. Cost Centres can be created for such functional areas as Marketing, Purchasing, Human Resources, Finance, Facilities, Information Systems, Administrative Support, Legal, Shipping/Receiving, or even Quality. Some of the benefits of Cost Centre Accounting are that the managers can set budget/cost Centre targets; Planning; etc.

Profitability Analysis:
This allows the management to review information with respect to the company’s profit or contribution margin by individual market segment.

Profit Centre Accounting:
This evaluates the profit or loss of individual, independent areas within an organization.

Product Cost Controlling:
This component calculates the costs that occur during the manufacture of a product or provision of a service. This allows the management the ability to analyse their product costs and to make decisions on the optimal price(s) to market their products.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 6.
What are the Benefits of ERP System?

  1. Information integration
  2. Use of Latest Technology
  3. On-time Shipment
  4. Reduction of lead-time
  5. Reduction in Cycle Time
  6. Reduced Quality Costs
  7. Improved Resource utilization
  8. Better Customer Satisfaction
  9. Improved Supplier Performance
  10. Increased Flexibility
  11. Improved information accuracy and decision-making capability
  12. Better Analysis and Planning Capabilities

Financial and Accounting Systems – CA Inter EIS Study Material

1. Information integration: ERP Systems have the ability to automatically update data between related business functions and components. For example – one needs to only update the status of an order at one place in the order-processing system; and all the other components will automatically get updated.

2. Use of Latest Technology: ERP packages are adapted to utilize the latest developments in Information Technology such as open systems, client/ server technology, Cloud Computing, Mobile computing etc. Adaptation of ERP packages to the latest changes in IT makes the flexible adaptation to changes in future development environments.

3. On-time Shipment: Since the different functions involved in the timely delivery of the finished goods to the customers such as purchasing, material management production, production planning, etc are integrated and the procedures automated; the chances of errors or mistakes are minimum and the efficiency of production is high. ERP system thereby ensures on- time delivery of goods to the customers.

4. Reduction of lead-time: Lead time is the passed time between placing an order and receiving the order. The ERP Systems by virtue of their integrated nature with many modules like Finance, Manufacturing, Material Management Module etc.; the use of the latest technologies like EFT (Electronic Fund Transfer), EDI (Electronic Data Interchange) reduce the lead times.

5. Reduction in Cycle Time: Cycle time is the time between placement of the order and delivery of the product. In an ERP System; all the data, updated to the minute, is available in the centralized database and all the procedures are automated, almost all these activities are done without human intervention. This efficiency of the ERP systems thus helps in reducing the cycle time.

6. Reduced Quality Costs: Quality is defined in different ways such as- excellence, conformance to specifications, fit and suitable for use, value for price, etc. The ERP System’s central database eliminates redundant specifications and ensures that a single change to standard procedures takes effect immediately throughout the organization.

7. Improved Resource utilization: Efficient functioning of the different modules in the ERP system like manufacturing, material management, plant maintenance, sales and distribution ensures that the inventory is kept to a minimum level, the machine down time is minimum and the goods are produced only as per the demand. Thus, the ERP systems help the I organization in resource utilization and improving the capacity.

8. Better Customer Satisfaction: Customer satisfaction means meeting or j exceeding customers ‘requirements for a product or service. Customers I can place the order, track the status of the order and make the payment sitting at home with the help of web-enabled ERP systems.

9. Improved Supplier Performance: ERP systems provide vendor management and procurement support tools designed to coordinate all aspects of the procurement process. They support the organization in its efforts to effectively negotiate, monitor and control procurement costs and schedules  while assuring superior product quality.

10. Increased Flexibility: ERP Systems help the companies to remain flexible by making the company information available across the departmental barriers and automating most of the processes and procedures, thus g enabling the company to react quickly to the changing market conditions.

11. Improved information accuracy and decision-making capability: Three fundamental characteristics of information are accuracy, relevancy and timeliness. The information needs to be accurate, relevant for the decision-maker and available to the decision-makers when he requires it.

12. Better Analysis and Planning Capabilities: By enabling the comprehensive and unified management of related business functions such as production, finance, inventory management etc. and their data, it becomes possible to utilize fully many types of Decision Support Systems (DSS).

Financial and Accounting Systems – CA Inter EIS Study Material

Question 7.
A Manufacturing company is implementing an ideal ERP software, where a single database is utilized and contains all data for various software modules. Identify the modules of an Ideal ERP software along with their functions. (May 2018; 6 Marks)
An ideal ERP System where a single database is being utilized and contains all data for various software modules includes the following modules:

  1. Human Resources: Benefits, training, payroll, time and attendance, etc.
  2. Financials: Accounts payable, accounts receivable, fixed assets, general ledger and cash management, etc.
  3. Manufacturing: Some of the functions include engineering, capacity, workflow management, quality control, bills of material, manufacturing I process, etc.
  4. Projects: Costing, billing, activity management, time and expense, etc.
  5. Supply Chain Management: Inventory, supply chain planning, supplier scheduling, claim processing, order entry, purchasing, etc.
  6. Customer Relationship Management (CRM):
    • CRM is a term applied to processes implemented by a company to handle its contact with its customers.
    • CRM software is used to support these processes, storing information on current and prospective customers.
    • Information in the system can be accessed and entered by employees in different departments, such as sales, marketing, customer service, training, professional development, performance management, human resource development, and compensation.
  7. Data Warehouse:
    • Usually this is a module that can be accessed by an organizations customers, suppliers and employees.
    • Data warehouse is a repository of an organization’s electronically stored data.
    • Data warehouses are designed to facilitate reporting and analysis. This classic definition of the data warehouse focuses on data storage.
  8. Other Essential Components of Data Warehouse are:
    • the means to retrieve and analyze data,
    • to extract, transform and load data,
    • and to manage the data dictionary.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 8.
Explain Role Based Access Control (RBAC) in ERP System.
Explain briefly the concept of Role-Based-Access-Control (RBAC) in ERP System. (Nov 2019; 2 Marks)
Role-Based Access Control (RBAC) is an approach to restricting system access to authorized users.

  1. It is used by most enterprises and can implement mandatory access control or discretionary access control.
  2. RBAC is a policy neutral access control mechanism defined around roles and privileges that lets employees having access rights only to the information they need to do their jobs and prevent them from accessing information that doesn’t pertain to them.
  3. RBAC can be used to facilitate administration of security in large organizations with hundreds of users and thousands of permissions.
  4. The components of RBAC such as role-permissions, user-role and role-role relationships make it simple to perform user assignments.
  5. Roles for staff are defined in organization and permission to access a specific system or perform certain operation is defined as per the role assigned.
  6. E.g. a junior accountant in accounting department is assigned a role of recording basic accounting transactions, an executive in human resource department is assigned a role of gathering data for salary calculations on monthly basis, etc.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 9.
As an IS Auditor, determine a checklist for the audit of ERP system in an organization. Also, summarize the auditing aspects of ERP systems.
Checklist to be followed by an IS Auditor for the audit of ERP
Systems are as follows:

  1. Is there an ERP system administrator with clearly defined responsibilities?
  2. Are users trained? Do they have complete and current documentation?
  3. Are user privileges based on what is called ‘role-based access?’
  4. Were adequate user requirements developed through meaningful interaction?
  5. Are user requirements met? Are users happy? Is the functionality acceptable?
  6. Are there adequate audit trails and monitoring of user activities?
  7. Does the system process according to GAAP (Generally Accepted Accounting principles) and GAAS (Generally Accepted Auditing Standards)?
  8. Does it have controls to process only authentic, valid, accurate transactions?
  9. Does the system protect confidentiality and integrity of information assets?
  10. Does it meet the needs for reporting, whether regulatory or Organizational?
  11. Can the system provide management with suitable performance data?
  12. Are effective system operations and support functions provided?
  13. Are all system resources protected from unauthorized access and use?
  14. Have workarounds or manual steps been required to meet business needs?
  15. Is there a problem-escalation process?

Auditing aspects in case of any ERP system can be summarized as under

    • Physical Safety:
    • Ensuring physical control over data.
    • Access Control:
      Ensuring access to the system is given on:
    • “need to know” (a junior accountant need not view Profit & Loss Account of the business) and
    • ‘need to do basis’ (HR executive need not record a purchase Order).
    • Functional Audit:
    • This includes testing of different functions/features in the system and testing of the overall process or part of process in the system 5 and its comparison with actual process.
    • E.g. Purchase Process, Sales Process, Salary Calculation Process, recruitment Process, etc.
    • Auditor may check this process in the system and compare it with actual process.
  3. Input Validations:
    • This stands for checking of rules for input of data into the system.
    • E.g. a transaction of cash sales on sales counter must not be recorded in a date other than today (not a future date or a back date, amount field must not be zero, stock item field shall not be empty, etc.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 10.
What is an MIS Report?

  1. Business managers at all levels of an organization, from assistant managers to executives, rely on reports generated from these systems to help them evaluate their business’ daily activities or problems that arise, make decisions, and track progress.
  2. MIS system reporting is used by businesses of all sizes and in every industry.

Question 11.
Who Uses MIS Reports?

1. MIS systems automatically collect data from various areas within a business.

These systems can produce DAILY REPORTS that can be sent to key members throughout the organization.

Key members through­out the organization.
2. Most MIS systems can also generate on-demand reports.

ON-DEMAND MIS REPORTS allow managers and other users of the system to generate an MIS report whenever the}’ need it.

Managers and other users of the system
3. Many large businesses have SPECIALIZED MIS DEPARTMENTS, whose only job is to gather business information and create MIS REPORTS.

Some of these businesses use sophisticated computing technology and software to gather information.

Many large businesses
4. There can be as many types of MIS reports as there are divisions within a business. For example:

(a) Information About Sales Revenue & Business Ex­penses would be useful in MIS reports for finance and accounting managers.

(b)  Warehouse managers would benefit from MIS reports About Product Inventory & Shipping In­formation.

(c) Total Sales From The Past Year could go into an MIS report for marketing and sales managers.

Finance and account­ing managers. Warehouse managers Marketing & Sales man­agers

Financial and Accounting Systems – CA Inter EIS Study Material

Question 12.
Explain Data Analytics. (Nov. 2018; 2 Marks)

  1. Data Analytics is the process of examining data sets to draw conclusions about the information they contain.
  2. Data Analytics is done increasingly with the aid of specialized systems and software.
  3. Data Analytics predominantly refers to an assortment of applications,
    • from basic Business Intelligence (BI), reporting,
    • Online Analytical Processing (OLAP) to
    • Various forms of advanced analytics.
  4. Data analytics technologies and techniques are widely used:
    • in commercial industries to enable organizations to make more-in-formed business decisions and
    • by scientists and researchers to verify or disprove scientific models, theories and hypotheses.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 13.
Explain Business Intelligence in brief. [May 2018; 2 Marks]

  1. Business Intelligence (BI) is a technology-driven process for analyzing data and presenting actionable information.
  2. BI help corporate executives, business managers and other end users make more informed business decisions.
  3. BI encompasses a wide variety of tools, applications and methodologies that enable organizations:
    • to collect data from internal systems and external sources,
    • prepare it for analysis,
    • develop and Run queries against the data,
    • and create reports, dashboards and data visualizations

to make the analytical results available to corporate decision makers as well as operational workers.

Question 14.
What are the Reasons of Business Intelligence?
Reasons for Business Intelligence:

  1. BI enables organizations to make well-informed business decisions and thus can be the source of competitive advantages.
  2. This is especially true when we can extrapolate information from indicators in the external environment and make accurate forecasts about future trends or economic conditions.
  3. Once business intelligence is gathered effectively and used proactively, we can make decisions that benefit our organization before the competition does.
  4. The ultimate objective of business intelligence is to improve the time-liness and quality of information.
  5. Business intelligence reveals to us –
    • The position of the firm in comparison to its competitors
    • Changes in customer behaviour and spending patterns
    • The capabilities of the firm
    • Market conditions future trends, demographic and economic information
    • The social, regulatory and political environment
    • What the other firms in the market are doing

Financial and Accounting Systems – CA Inter EIS Study Material

Question 15.
Why is Business Reporting Important?
1. Effective and transparent business reporting allows organizations to present a cohesive explanation of their business and helps them engage with internal and external stakeholders, including customers, employees, shareholders, creditors, and regulators.

2. High-quality business reporting is at the heart of strong and sustainable organizations, Financial markets, and economies, as this information is crucial for stakeholders to assess organizational performance and make informed decisions with respect to an organization’s capacity to create and preserve value. (Value in this context is not necessarily limited to monetary value, but can also comprise, for example, social, environmental, or wider economic value.)

3. As organizations fully depend on their stakeholders for sustainable success, it is in their interest to provide them with high-quality reports. For example, effective high-quality reporting reduces the risk for lenders and may lower the cost of capital.

4. Many organizations are increasingly complex, and have larger economic, environmental, and social footprints. As a result, various stakeholder groups are demanding increased ESG information, as well as greater insight into how these factors affect financial performance and valuations.

5. High-quality reports also promote better internal decision-making. High-quality information is integral to the successful management of the business, and is one of the major drivers of sustainable organizational success.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 16.
Being an IT consultant to a Government agency PQR, identify the most common open international standard, that should be used by the agency for their standardized digital business reporting. Support the rec-ommendation by preparing a list of its important features also. (RTP May 2018)

  1. XBRL is the open international standard for digital business reporting.
  2. It is managed by XBRL International (a global not for profit consortium).
  3. XBRL is used around the world, in more than 50 countries. Millions of
    XBRL documents are created every year, replacing older, paper-based reports with more useful, more effective and more accurate digital versions.
  4. In a nutshell, XBRL provides a language in which reporting terms can be authoritatively defined.
  5. These terms can then be used to uniquely represent the contents of financial statements or other kinds of compliance, performance and business reports.
  6. XBRL let’s reporting information move between organizations rapidly, accurately and digitally.
  7. XBRL is a standards-based way to communicate and exchange business information between business systems.
  8. These communications are defined by metadata set out in Taxonomies, which capture the definition of individual reporting concepts as well as the relationships between concepts and other semantic meaning.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 17.
What is XBRL tagging?
Describe the Concept of XBRL Tagging

  1. XBRL Tagging is the process by which any financial data is tagged with the most appropriate element in an accounting taxonomy.
  2. Accounting Taxonomy is a dictionary of accounting terms.
  3. The appropriate element in Taxonomy best represents the data in addition to tags that facilitate identification/’classification (such as enterprise, reporting period, reporting currency, unit of measurement etc.).
  4. Since all XBRL reports use the same taxonomy, numbers associated with the same element are comparable irrespective of how they are described by those releasing the financial statements.

Question 18.
What are the Important features of XBRL?
1. Testable Business Rules:
XBRL allows the creation of business rules that constrain what can be reported. Business rules can be logical or mathematical, or both and can be used, for example, these business rules can be used to:

  • Stop poor quality information being sent to a regulator or third party, by being run by the preparer while the report is in draft.
  • Stop poor quality information being accepted by a regulator or third party, by being run at the point that the information is being received. Business reports that fail critical rules can be bounced back to the preparer for review and resubmission.
  • Flagging or highlighting questionable information, allowing prompt follow up, correction or explanation.

2. Clear Definitions:

  1. XBRL allows the creation of reusable, authoritative definitions, called taxonomies.
  2. Taxonomies capture the meaning contained in all the reporting terms used in a business report, as well as the relationships between all of the terms.
  3. Taxonomies are developed by regulators, accounting standards setters, government agencies and other groups that need to clearly define information that needs to be reported upon.
  4. XBRL doesn’t limit what kind of information is defined it’s a language that can be used and extended as needed.

3. Multi-lingual Support:

  1. XBRL allows concept definitions to be prepared in as many languages as necessary.
  2. Translations of definitions can also be added by third parties.
  3. This means that it’s possible to display a range of reports in different language to the one that they were prepared in, without any additional work.

4. Strong Software Support:
XBRL is supported by a very wide range of software from vendors large and small, allowing a very wide range of stakeholders to work with the standard.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 19.
A business organization is planning to switch on to an integrated software for accounting as well as tax compliance instead of separate software for accounting and tax compliance. Being a consultant to the management of this organization, you are required to advise them on various Pros and Cons of having single software for both the accounting and tax compliance. (Nov. 2018; 4 Marks)

S.No. Particulars Accounting & Tax Compli­ance Software Only Tax Compliance Software
1 Cost More – if tax compliance feature is not available in accounting system, getting it customized may require some amount of cost which may be higher than buying separate software. Less – as this is specific pur­pose software, there shall be less complications and the cost also shall be less.
2 Accuracy More – As this is an integrated system and hence account­ing data and tax compliance data shall always be same. No need to transfer data to compliance software and reconcile the data. Less – as there are two sep­arate system, reconciliation with accounting data is needed, and possibility of mismatch of data is always there.
3 Time and efforts required Less – as this is an integrated system, time required to transfer data to compliance software is zero. More – as this is a separate software, data from ac­counting software need to put in this for preparation of returns. This may take extra time and efforts.
4 Ease of soft­ware operation Less – as this is integrated system of accounting and tax compliance, everything connected with other and making changes at one plac e may affect other aspects also. More – as this is used only for one single purpose, i.e. tax compliance, it is less complicated and bound to

be easy.

5 Features and facilities Less – as this system is not an exclusive system for tax compliance, it may have limited features for tax compliance. More – as this is an exclusive and specifically designed system for tax compliance, naturally more features and facilities shall exist in this system.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 20.
Write a brief description of three tier architecture of Application Software. (Nov. 2019; 2 Marks)
The layers of Three Tier Architecture of Application Software are as below:

  • The Application Layer receives the inputs from the users and per-forms certain validations like, if the user is authorized to request the transaction.
  • The Operating System Layer then carries these instructions and processes them using the data stored in the database and returns the results to the application layer.
  • The Database Layer stores the data in a certain form. For a transaction to be completed, all the three layers need to be invoked. Most application software is built on this model these days.

Question 21.
Sales and Distribution Process that is used by organizations to support sales and distribution activities of products and services, starting from enquiry to order and then ending with delivery is one of the most important module in ERP. Determine the various activities that are involved in Sales and Distribution Process. (RTP Nov. 2019)
Sales and Distribution Process

  • Pre-Sales Activities – Include prospecting of customers, identifying prospective customers, gathering data, contacting them and fixing appointments, showing demo, discussion, submission of quotations, etc.
  • Sales Order – Sales order is recorded in our books after getting a confirmed purchased order from our customer. Sales order shall contain details just like purchase order. Eg. Stock Item Details, Quantity, Rate, Due Date of Delivery, Place of Delivery, etc.
  • Inventory Sourcing – It includes making arrangements before delivery of goods, ensuring goods are ready and available for delivery.
  • Material Delivery – Material is delivered to the customer as per sales order. All inventory details are copied from Sales Order to Material Delivery for saving user’s time and efforts. This transaction shall have a linking with Sales Order. Stock balance shall be reduced on recording of this transaction.
  • Billing – This is a transaction of raising an invoice against the delivery of material to customer. This transaction shall have a linking with Material Delivery and all the details shall be copied from it. Stock balance shall not affect again.
  • Receipt from Customer – This is a transaction of receiving amount from customer against sales invoice and shall have a linking with sales invoice.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 22.
On joining a Manufacturing company XYZ, you are briefed about the functioning of different modules like Financial Accounting Module, Sales and Distribution Module, Human Resource Module, Material Management Module, Production Planning Module etc. Prepare a brief description on the Material Management Module (MM) based on your understanding, (RTP Nov. 2018)

  • MM Module as the term suggests manages materials required, processed and produced in enterprises.
  • Different types of procurement processes are managed with this system.
  • Some of the popular sub-components in MM module are vendor master data, consumption based planning, purchasing, inventory management, invoice verification and so on.
  • Material Management also deals with movement of materials via other modules like logistics, Supply Chain Management, sales and delivery, warehouse management, production and planning.

OVERALL PURCHASE PROCESS is given as follows:

  • Purchase Requisition from Production Department: Production department sends a request to purchase department for purchase of raw material required for production.
  • Evaluation of Requisition: Purchase department shall evaluate the requisition with the current stock position and purchase order pending position and shall decide about accepting or rejection the requisition.
  • Asking for Quotation: If requisition is accepted, quotations shall be asked to approve vendors for purchase of material.
  • Evaluation of quotations: Quotations received shall be evaluated & compared.
  • Purchase Order: This is a transaction for letting an approved vendor know what we want to purchase, how much we want to purchase, at what rate we want to purchase, by what date we want the delivery, where we want the delivery. Hence a typical purchase order shall have following information.
  • Description of stock items to be purchased.
  • Quantity of these stock items.
  • Rate for purchases.
  • Due Date by which material is to be received.
  • Go down where material is to be received.

Material Receipt – This is a transaction of receipt of material against purchase order. This is commonly known as Material Receipt Note (MRN) or Goods Receipt Note (GRN). This transaction shall have a linking with purchase Order Information.
In purchase Order is automatically copied to Material receipt Voucher for saving time and efforts of user. Stock is increased after recording of this transaction.

  • Issue of material – Material received by stores shall be issued to production department as per requirement.
  • Purchase Invoice – This is a financial transaction. Trial balance is affected due this transaction. Material Receipt transaction does not affect trial balance. This transaction shall have a linking with Material Receipt Transaction and all the details of material received shall be copied automatically in purchase invoice. As stock is increased in Material Receipt transaction, it will not be increased again after recording of purchase invoice.

Payment to Vendor – Payment shall be made to vendor based on purchase invoice recorded earlier. Payment transaction shall have a linking with purchase invoice.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 23.
Explain the concept of “Customer Relationship Management (CRM)” and identify its key benefits also. (RTP May 2018)
Customer Relationship Management (CRM) is a system which aims at improving relationship with customers. Briefly explain any four key ben-efits of CRM module of ERP. (May 2019; 4 Marks)

  1. Customer Relationship Management IS A SYSTEM which aims at improving the relationship with existing customers, finding new prospective customers, and winning back former customers.
  2. This system can be brought into effect with software which helps in collecting, organizing, and managing the customer information.
  3. CRM manages the enterprise’s relationship with its customers.
  4. This includes determining who the high-value customers are and documenting what interactions the customers have had with the enterprise.

Key benefits of a CRM module are as under.
1. Improved customer relations: One of the prime benefits of using a CRM is obtaining better customer satisfaction. By using this strategy, all dealings involving servicing, marketing, and selling your products to your customers can be carried out in an organized and systematic way. You can also provide better services to customers through improved understanding of their issues and this in turn helps in increasing customer loyalty  and decreasing customer agitation.

2. Increase customer revenues: By using a CRM strategy for your business, you will be able to increase the revenue of your company. Using the data collected, you will be able to popularize marketing campaigns in a more effective way. With the help of CRM software, you can ensure that the product promotions reach a different and brand new set of customers, and not the ones who had already purchased your product, and thus effectively increase your customer revenue.

3. Maximize up-selling and cross-selling: A CRM system allows up-selling .which is the practice of giving customers premium products that fall in the same category of their purchase. The strategy also facilitates cross selling which is the practice of offering complementary products to customers, based on their previous purchases. This is done by interacting with the customers and getting an idea about their wants, needs, and patterns of purchase.

4. Better internal communication: Following a CRM strategy helps in building up better communication within the company. The sharing of customer data between different departments will enable you to work as a team.

5. Optimize marketing: With the help of CRM, you will be able to understand your customers needs and behaviour, thereby allowing you to identify the correct time to market your product to the customers. CRM will also give you an idea about the most profitable customer groups, and by using this information you will be able to target similar prospective groups, at the right time. In this way, you will be able to optimize your marketing resources efficiently.

Financial and Accounting Systems – CA Inter EIS Study Material

Question 24.
ERP implementation is the difficult task as the organization which is in the process of implementing ERP should keep abreast of latest technological development. Describe the different risks associated with technology while implementing ERP. (RTP May 2020)

Aspect Risk Associated Control Required
Software Func­tionality ERP systems offer a myriad of features and functions, however, not all organizations require those many features. Implementing all the function­ality and features just for the sake of it can be disastrous for an organization. Care should be taken to incor­porate the features that are required by the organization and supporting additional features and functionality that might be required at a future date.
Technological Obsolescence With the advent of more effi­cient technologies every day, the ERP system also becomes obsolete as time goes on. This requires critical choice of technology, architecture of the product, ease of enhance­ments, ease of upgrading, quality of vendor support.
Enhancement and Upgrades ERP Systems are not upgraded and kept up-to-date. Patches and upgrades are not installed and the tools are underutilised. Care must be taken while selecting the vendor and upgrade/support contracts should be signed to minimize the risks.
Application Portfolio Man­agement These processes focus on the selection of new business applications and the projects required delivering them. By bringing to the light the sheer number of applications in the current portfolio, IT organizations can begin to reduce duplication and com­plexity.

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